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"OK, WHO LEAKED THE FED MINUTES?" (0645 GMT)
"Ok, who leaked the Fed minutes?," Sven Henrich, founder of
NorthmanTraderm, asked jokingly on twitter after markets
suddenly switched to risk-off mode yesterday.
While one would typically expect investors to trade
cautiously a day before getting a better sense of what caused
the hawkish shift at the U.S. Federal Reserve's June meeting,
the market price action was surprisingly decisive.
Government bond yields dropped, the dollar rose, the
reflation trade and cyclical stocks got hammered and traders
were suddenly ready to pay an extra premium for growth stocks,
particularly tech, which sent the Nasdaq to new record highs.
Market participants were hard pressed to find a single
catalyst for the mood swing but offered plenty of explanations.
COVID-19 fears (Delta variant surging), peak-growth fears
(ISM showing a cooling in U.S. services), the Chinese crackdown
on tech companies, falling oil prices (OPEC+ meeting): there was
no shortage of possible triggers.
Another view is that the U.S. yield curve flattening, with
U.S. 10-year notes dropping to their lowest since
February at 1.34%, meant some investors were betting the Fed
would tighten its policy pre-emptively to head off inflation.
There's not much left to wait before the Fed minutes are
published later on Wednesday. In the meantime, bond markets are
calmer. Stock futures in Europe are slightly positive with no
palpable sign of yesterday's stress.
That's good news for London's stock market, which faces a
test of its capacity to be a hub for fintech post Brexit with
the listing of cross-border payments firm Wise <IPO-WISE.L>.
Key developments that should provide more direction to
markets on Wednesday:
- Samsung Electronics flags 53% jump in Q2 profit, tops
estimates
- German May industrial output -0.3% m/m in May
- Germany to sell 5 bln euros of 5-year bonds
- UK Halifax fall for first time since January
- Japan coincident index first fall in 3 months
- France May current account
- U.S. May JOLTs job openings
- Thai central bank monetary policy report
- Riksbank deputy governor Henry Ohlsson talk on e-krona
NO REBOUND ON THE HORIZON (0525 GMT)
European futures are up a modest 0.1% about two hours before
the open and seem so far in no mood to rebound after their
retreat yesterday.
It's still not 100% clear what caused Tuesday's risk-off
episode which also hit Wall Street and Asia overnight.
COVID-19 fears, peak-growth fears, Fed policy fears, Chinese
tech fears: there's a large choice of options at hand.
Whatever the cause however, the end result goes like this:
government bond yields are lower, cyclical stocks are under
pressure and investors are ready to pay an extra premium for
growth stocks, particularly in the tech sector.
It's unlikely we'll a breakthrough in terms of direction of
travel until investors get the minutes from the Fed's June
meeting and get a better sense of what its recent hawkish shift
is about.
(Julien Ponthus)
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